Small shareholders rise in Alembic

The small shareholder director is to be appointed under Section 151 of the Companies Act 2013, where only shareholders with a nominal value less than Rs 20,000 can elect through a postal ballot.Boby Kurian&Reeba Zachariah | TNN | July 24, 2017, 07:45 IST

MUMBAI: In a precedent-setting move, small shareholders are pushing for a board seat in the country’s oldest pharmaceutical company — the 110-year-old Alembic. More than a thousand shareholders have moved a resolution to appoint a director on their behalf at the annual general meeting (AGM) on July 28, as they seek better investor returns through reorganisation moves in the Chirayu Amin-led company.

The small shareholder director is to be appointed under Section 151 of the Companies Act 2013, where only shareholders with a nominal value less than Rs 20,000 can elect through a postal ballot. “As this is untested, company secretaries and lawyers are yet grappling with the implications of such a move. However, it empowers the minority shareholder and provides a way for small shareholders to get their nominee onto the board,” said Shriram Subramanian, MD, InGovern Research Services — a firm advising institutional investors on corporate governance standards.

If appointed, the small shareholder director will have a three-year tenure. An Alembic executive said the board of directors was seized of the matter and would take transparent and appropriate steps in this regard. He said the procedure for appointing small shareholder director insists on postal ballot and not through voting at the AGM.

The Vadodara-based company’s small shareholders are lining up under the banner of activist asset manager Unifi Capital, which has just under 3% stake and is among the top three non-promoter shareholder blocks in Alembic. Unifi has called for steps to mitigate 70% discount in the stock price of Alembic compared to the company’s main underlying asset, Alembic Pharma, which has a Rs 10,000-crore market value.

Darshan Upadhyay of Economic Laws Practice said that while Section 151 is clear about the mechanism to elect small shareholders’ director, this — read with other rules — creates a possibility of interpretation on shareholders eligible to vote. “Though only small shareholders should have voting rights on such nomination so as to go with the intent set out in Section 151, the right for shareholders other than small shareholders to vote on such appointment is not taken away since Section 152 is also applicable,” Upadhyay said.

In 2011, Alembic de-merged Alembic Pharma to pursue growth in generics, domestic formulations and APIs. The holding company Alembic continued with manufacturing of intermediate drugs such as penicillin and erythromycin thiocyanate, besides tapping development of its unused real estate assets. It has a little over Rs 1,000 crore in market capitalisation, but directly owns about 30% in Alembic Pharma which is valued at around Rs 3,000 crore.

There are several cases of holding companies trading at massive discounts in India Inc. Interestingly, exchange data shows that promoters increased their stake in the holding company by nearly 2% in the past two years even as small shareholders saw scope for improving the stock price. Unifi Capital, which is nominating its vice-president Murali Rajagopalchari as small shareholder director, declined to comment on the matter.These shareholders have communicated with Alembic board for several months, arguing their case for redistribution of their shares in Alembic Pharma, possibly through a scheme of arrangement. This they said merited a serious look-in by the board of directors, especially since the holding company’s businesses (penicillin and real estate) doesn’t require any significant capital expenditure programme. In fact, Alembic’s annual reports have mentioned that the penicillin business is operating well below optimum capacity due to cheap Chinese supplies.

Faced with a similar situation in 2014, Kirloskar Brothers redistributed its shares in Kirloskar Oil Engines, which had a far higher market value, unlocking better returns for all holding company shareholders.